The new private stock market in London, Pisces, "faces three big problems"

Although the Pisces exchange might close a market gap, Kaylie Pferten asserts that it won't solve the underlying issue

The name isn't exactly the catchiest. A new, loosely regulated platform for trading stocks in the city will be established by the Private Intermittent Securities and Capital Exchange System, which is conveniently abbreviated to Pisces. Investors can trade the shares on one of the official platforms after a private company sells some of them whenever it wants. It will essentially enable private businesses to access the stock market's infrastructure without having to deal with the trouble and cost of a full-scale listing. The Financial Conduct Authority hopes to have the market operational by the end of the year after finalizing its regulations.

It is at least an indication that something is being done to address the exodus of companies from the stock market, but it will only be accessible to high-net-worth, sophisticated individuals and institutional investors. One of the most consistently successful tech firms in Europe, Wise, only revealed this month that it was relocating its primary listing from London to New York. The controversial but massive Chinese fast-fashion company Shein chose to list in Hong Kong rather than London just a few weeks prior. Overall, there are now only 1,600 companies listed in London, down from 2,400 ten years ago. To make matters worse, there are hardly any new listings to take their place, with only 18 initial public offerings (IPOs) raising a meager 770 million last year. By the 2040s, the London market will have vanished based on current trends. Pisces aims to change that.

The new market has a case to be made. Although it will be below the junior Aim market, it will be slightly above crowdfunding platforms. The goal is to establish a more lax regulatory environment that will enable expanding companies to begin the process of going public and build a pipeline of new companies seeking to replace departing ones.

Pisces has three major flaws.

However, there are three major issues. First, while the main market undoubtedly has too many rules, which is a big part of why so many people have quit, Pisces might have too few. Major shareholders will not have to disclose any future transactions. No particular accounting standards will be required of businesses that trade on Pisces.

Even though they must state whether their accounts have been audited, they won't even need to have their accounts audited. To characterize it as a Wild West market would be unjust to American frontier towns of the 19th century. Even knowledgeable private investors, like BFIA readers, are unlikely to be persuaded to invest in the shares traded on the new exchange. They literally won't know what's happening at the company unless they know the directors personally. Institutional investors will find it extremely difficult to approve such risk-taking when they have the option to invest in Vodafone and Unilever.

Secondly, where are the tax incentives? Private investors would be more inclined to invest in the new market if there were substantial tax savings available. Investors are, after all, funding smaller, riskier businesses that have the potential to grow quickly. There would have been a compelling case for providing something to Pisces investors in its place, as inheritance-tax relief in Aim shares is, of course, being reduced in the wake of the most recent Budget. However, no. The taxes due on any other investment will apply to anyone purchasing shares on the platform. Considering that it will unavoidably be much less safe, it scarcely seems worthwhile.

Last but not least, it ignores the true issue. The UK has actually done a pretty good job of investing in small, up-and-coming businesses through venture-capital trusts and the enterprise investment scheme. The challenge is convincing them to list their equity in the US, where it will be more generously valued, or to move onto the main market rather than selling out as soon as a big tech company makes a generous offer. To address that, a new, loosely regulated market for extremely small trades is not necessary.